Section 5: Financial

Information and Financial

Decisions
 Chapter 22: Business Finance: Needs and Sources

What do Finance Departments do? The main reasons why Sources of Finance Internal Sources of Finance External Sources of Finance
businesses need finance
 Recording all financial transactions, such as  Internal Finance  Retained Profit  Issue of Shares
payments to suppliers and revenue from  Starting up a Business  External Finance
customers.  Sale of existing assets  Bank Loans
 Expanding an existing  Long-term Finance
 Preparing final accounts. business  Short-term Finance  Sale of inventories  Selling debentures

 Producing accounting information for  Additional Working Capital  Owner’s saving  Factoring of debts
managers. - Working Capital: money
needed by a business to pay its  Grants and Subsidies
 Forecasting cash flows. day-to-day costs.
 Microfinance
 Making important financial decisions, for -Capital Expenditure & Revenue
example, which source of finance to Expenditure  Crowdfunding

 use for different purposes within the

business.
 Chapter 22: Business Finance: Needs and Sources

Short-Term Finance Long-Term Finance Factors influencing the Market Segments

decision on sources of
 Bank Overdrafts  Bank Loans Finance  Market segmentation is
when market is broken
 Trade Credit  Hire Purchase  Purpose and time-period down into sub-groups
which share similar
 Factoring of  Leasing  Amount needed characteristics.
Debts
 Issue of Shares  Legal form of business
and Size  By socio-economic group
 Debentures  By age
 Control  By location
 By gender
 Risks and Gearing  By use of the products
 By lifestyle

 Benefits of market
segmentation
 Chapter 23: Cash-flow Forecasting and Working Capital
Market Research Product Orientated and
Market orientated
 Market Research is
the process of  A product-orientated
gathering, analyzing business is one whose main
and interpreting focus of activity is on the
information about a product itself. (Example:
market Pharmaceutical Industry,
Mining Industry)
 A market-orientated
business is one which
carries out market research
to find out what customer
wants before a product is
developed and produced.
(Example: FMCGs)
Market Research Methods
 Primary Research or Field
Research is the collection
and collation of original
data via direct contact with
potential customers.
 Secondary Research or
Desk Research uses
information that has
already been collected and
is available for use by
others
Primary Market Research The Process of Primary Methods of Primary Market
Research Research
 Advantages
 Disadvantages 1. What is the purpose of  Questionnaires
the market research? • Adv/Disadv
2. Decide on the most  Online surveys
suitable method of • Adv/Disadv
research
 Interviews
3. Decide on the size of • Adv/Disadv
sample needed and who
is going to be asked  Focus Groups
• Adv/Disadv
4. Carry out the research
5. Collate the data and
analyze the results
6. Produce a report of
findings
 Chapter 23: Cash-flow Forecasting and Working Capital

The need for sampling Secondary Market Internal Source of Secondary External Source of Factors influencing the Presentation of data from
Research Data Secondary Data accuracy of market research market research
 A sample is a group of data
people who are selected  Advantages  Sales department records,  Government Statistics  Tally Chart
to respond to a market  Disadvantages pricing data, customer 1. How carefully the
research exercise such as records, and sales reports  Newspapers sample was drawn up  Diagram
a questionnaire.
 Finance Department  Trade association 2. Sample Size  Line Graph
 Random Sample is when
people are selected at  Customer Service  Market Research 3. Wording of questions  Pie Chart
random as a source of Department agencies
information for market 4. Who carries out the  Bar Chart
research.  Online sources research

 Quota Sample is when 5. Bias

people are selected on
the basis of certain 6. Age of information
characteristics (such as
gender, age or income)
as a source of
information for market
research.
 Chapter 24: Income Statements

The Marketing Mix The Four Ps of the Types of Products What makes a product Product Development Benefits and Limitations of
Marketing Mix successful? developing a new product.
 The marketing mix is a  Consumer 1. Generate ideas
term which is used to  Product: Goods/Services  Satisfies existing needs  Benefits
describe all activities  Price:  Producer Goods/ and wants of consumers 2. Select the best ideas for
which go into marketing  Place: Services further research  USP
a product or service.  Promotion:  Design- performance,  Diversification
reliability, quality 3. Decide if the company  Expand into new markets
 These activities are often will be able to sell  Expand in existing
summarized as four Ps  Capable of stimulating enough for the product markets
new wants from consumer to be a success
 Product
 Price  Not too expensive to 4. Develop a prototype  Limitations
 Place produce
 Promotion 5. Launch the product in  Cost of carrying market
 The first business to one area to test the research
produce the new product market  Cost of producing trial
products
 Has very distinctive that 6. Go for a full launch of  Lack of sales if the target
makes it appear different the product to the market is wrong
whole market  Loss of company image if
a new product fails to
meet customer needs

The Importance of Brand Image
 Brand name is a product's unique
name that distinguishes it from other
brands.
 Brand Image is an image or identity
given to a product that gives it a
personality of its own and
distinguishes it from its competitors’
brands.
 Branding:
• Need advertising to reinforce the
brand’s qualities
• Higher quality than unbranded
products
• Always of the same standard (assured
quality)
• Unique packaging
• Encourages customers to keep buying
it (Brand loyalty)
• Creates a brand image
• Higher price than unbranded
products.
Chapter 24: Income Statements
The role of packaging
 It is the physical container or
wrapping for a product. It is also
used for promotion and selling
appeal.
 It protects the products
 Suitable for the products to fit in
 Eye catching
 Easy to transport the product
 Carries the information about the
product
 Easy to open the container and
use the product
 Promotes the brand image
The Product Life Cycle
 It describes the stages a product will
pass through from its introduction,
through growth until it is mature,
and then finally its decline.
 Development
 Introduction
 Growth
 Maturity
 Saturation
 Decline
 Note: we also have to know how
stages of the product life cycle
influence marketing decisions –
Pricing, Promotion
Extending the product life cycle
 Introduce new variations of the
original product (e.g. children’s
version)
 Sell into new market
 Make small changes to the product’s
design, color or packaging
 Use an advertising campaign
 Sell through additional outlets
 Introduce a new improved version of
the old product
 Chapter 25: Statement of Financial Position

The role of pricing decisions in the Cost-Plus Pricing Competitive Pricing Penetration Pricing
marketing mix
 It is the cost of manufacturing the  It is when the product is priced in  It is when the price is set lower
 When deciding a price for either an product plus a profit. line with or just below competitors’ than the competitors’ prices in
existing product or a new product, prices to try to capture more of the order to be able to enter a new
the business must be very careful market. market
to choose a price that will fit in  Benefits
with the rest of the marketing mix  Limitations  Benefits  Benefits
of the product.  Limitations  Limitations

To cover costs and ensure a certain

profit is made To increase sales
To enter new markets

Promotional pricing
 It is when a product is sold at
a very low price for a short
period of time.
 Benefits
 Limitations
To enter new markets
Chapter 25: Statement of Financial Position
Price Skimming
 It is where a high price is
charged for a new
product in the market.
 Benefits
 Limitations
To make high profit and recoup
research and development costs
Dynamic Pricing
 It is when businesses change
product prices, usually when
selling online, depending on the
level of demand.
 Example: Airlines companies use
dynamic pricing and charge
different prices for flights to the
same airport at different times of
the day or different times of the
year.
Price Elastic Demand
 Price Elastic Demand
This is where consumers are very
sensitive to changes in price.
 Price Inelastic Demand
This is where consumers are not
sensitive to changes in price.
PED= (% change in quantity demand) /
( % change in price)

The role of place decisions in the
marketing mix
 The product or service must be
available where and when
customers want to buy it. And it
consider how and when consumers
can buy the product will affect how
well it will sell.
Chapter 26: Analysis of Accounts
Distribution Channel Distribution Channel 1 – Direct to Distribution Channel 2 – Using the
consumers retailer as the only intermediary
 It is the means by which a product is passed from
the place of production to the customer. Advantages Advantages
 It is very simple as the • Producer sells large quantities to
manufacturer sells directly to the retailers
 Distribution Channel 1 consumer • Reduced distribution cost
Producer to Consumer  It is usually cheaper as it cuts out compared to direct selling to
wholesaler and retailer consumers.
 Distribution Channel 2
Producer to Retailer to Consumer Disadvantages
Disadvantages • No direct contact with customers
 Distribution Channel 3 • It is impractical for most products • The price is often higher than
Producer to Wholesaler to Retailer to because the consumers probably do direct selling as the retailer has
Consumer not live near the factory and could to cover its costs and make a
not go there to buy the product. profit
 Distribution Channel 4
Producer to Agent to Wholesaler to Retailer
to Consumer

Distribution Channel 3- Using a
wholesaler and retailer as
intermediaries
Advantages
• Wholesaler save storage space for
small retailer and reduces storage
cost
• Small retailers can purchase fresh
products in small quantities from
wholesalers
• Wholesalers may give credit to
retail customers
• Wholesaler may deliver to the small
retailer, saving transportation costs
Disadvantages
• Maybe more expensive for the small
shop to buy from a wholesaler than
if it bought straight from the
manufacturer
• Wholesalers may not have the full
range of products to sell
• The consumer price is often higher
than direct selling as both
wholesaler and retailer have to
cover costs and make a profit
Chapter 26: Analysis of Accounts
Distribution Channel 4-
Using additional
intermediaries as an agent
Advantages
• Agents will be aware of
local conditions and will
be in the best position to
select the most effective
places to sell
Disadvantages
• The producer has less
control over the way the
product is sold to
customers.
Methods of Distribution Selecting the distribution channel to
use
 Department Stores
 Chain Stores  What type of product is it?
 Discount Stores  Is the product very technical?
 Superstores  How often is the product purchased?
 Supermarkets  How expensive is the product?
 Independent Retailers  How perishable is the product?
 Direct Sales  Where are customers located?
 Mail Order  Where do the competitors sell their
 Internet/ e- commerce products?

The role of place decisions in
the marketing mix
 Promotion is where
marketing activities aim to
raise customer awareness of
a product or a brand,
generating sales and helping
to create brand loyalty
 Promotion includes the
following
 Advertisement (Above the
line promotion) – using
media to raise awareness
 Sales Promotion (Below the
line promotion) – not using
media to raise customer
awareness
Chapter 15: The Marketing Mix - Promotion
The aims of promotion
 To inform people about
particular issues
 To create a brand image
 To introduce new products
on to the market
 To increase sales
 To compete with
competitors’ products
 To improve the company
image
Advertising The process of advertising Sales Promotion
 Advertising is paid for 1. Set objectives  These are incentives such as
communication with potential 2. Decide the advertising budget special deals aimed at consumers
customers about a product to 3. Create an advertising campaign to achieve short-term increases in
encourage them to buy it. 4. Select the media to use sales.
5. Evaluate the effectiveness of the
 Informative Advertising is campaign 1. After-sale service
where the emphasis of 2. Gifts
advertising or sales promotion 3. BOGOF
is to give full information about Types of advertising media 4. Price reductions
the product 5. Competitions
6. TV 6. Point of sale display and
 Persuasive advertising is 7. Cinema demonstration
advertising or promotion 8. Display signs 7. Free samples
which is trying to persuade the 9. Newspaper 8. Product placement
consumer that they really need 10. Internet/Social Media
the product and should buy it 11. Magazines
12. Leaflets
13. Mail
14. Posters/billboards
15. Radio
 Chapter 15: The Marketing Mix - Promotion

The advantages of sales promotion
 It can promote sales at times in the
year when sales are traditionally low.
 It encourages new customers to try
an existing product.
 It encourages existing customers to
buy a product more often or in
greater quantities, increasing
customer loyalty
 It encourages customers to buy your
product instead of competing brand
The importance of the marketing
budget
 A marketing budget is a financial
plan for the marketing of a
product or product range for a
specified period of time.
 The need for cost-effectiveness in
spending the marketing budget is
very important. It won’t be a
good strategy to spend a large
amount of money on a campaign
if there is only a small increase in
sales.
Factors to consider when deciding the Public relations/ sponsorship
type of promotion
 Public relations is concerned with
 The stage of the product life cycle promoting a good image for the
that has been reached business and its products. It can take
 The nature of the product itself may forms like sponsoring events.
 The cultural issues involved in
international marketing
 The nature of the target market
 Chapter 16: Technology and The Marketing Mix

How technology influences the marketing mix Use of the internet and social media E-commerce
networks for promotion
 The product part of the marketing mix may  E-commerce is the online buying
be changed to respond to new technology.  Benefits and selling of goods and services
 Businesses are using social media marketing  Target specific demographic using computer systems linked to
and viral marketing to promote their groups the internet and apps on mobile
products or services.  Target customers will see the
 It can use dynamic pricing to increase advert when they go to Facebook
revenue by changing the prices frequently  Low cost  Opportunities for business  Opportunities for consumers
depending on the level of demand for a  Reaches groups that are difficult to
product on the internet. reach any other way  Low-cost promotion  Convenience
 It creates new opportunities for the place  Global coverage  Easy to compare
part by facilitating the use of online  Able to access many consumers  Easy to pay
purchasing and e-commerce.  Limitations  Shops might not be needed  Wider choice
 It can alienate customers if they  B2B easier  Competitive prices
find the advert annoying
 Social Media Marketing is a form of internet  Have to pay for advertising if using  Threats to business
marketing that involves creating and sharing pop-ups  Threats to consumers
content on social media in order to achieve  Lack of control of advertising if • Setting up website cost
marketing and branding objectives used by others • No direct consumer contact  Internet access required
 Potential customers may not use • Competition from other websites  Cannot see or feel the products
 Viral marketing is when consumers are social media • Transport costs  Identity theft
encouraged to share information online  Technical problems
about the products of a business  No personal contact

Marketing Strategy
 A marketing strategy is a
plan to combine the right
combination of the four
elements of the marketing
mix for a product or
service to achieve a
particular marketing
objective.
 It could include:
• Increasing sales of an
existing product or service
to new markets or selling
more in the existing
market
• Maintaining market share
if competition is
increasing
• Increasing market share
Chapter 17: Marketing Strategy
Importance of the Legal Controls on marketing
marketing mix in
influencing consumer Consumers can be easily
decisions (pg. 204) misled. The laws on
consumer protection are
important to protect
Recommending and consumers.
justifying a marketing
strategy in given  Forms of consumer
circumstances (pg.205) protection
 Weight and Measure
 Trade Descriptions
 Supply of Goods and
Services Act
 Misleading pricing claims
 Consumer Contracts
Regulations
Growth Potential of new Problems of entering a Methods to overcome the problems
markets in other countries foreign market of entering a new market
 Markets in other  Lack of knowledge  Joint Ventures
countries might have  Cultural Differences This allows the business to gain
much greater growth  Ex-rate changes important local knowledge so that
potential than existing  Import restrictions culture and customs can be adapted
market  Increased risk of non- to enable a more successful entry
 Home markets might be payment into the new market
saturated  Increased transport
 There is a wider choice of costs  Licensing
locations to produce This is where the business gives
products permission for another company in
 Trade Barriers have been the new market being entered to
lowered in many parts of produce the branded or patented
the world, making it products under license.
easier to trade
 International Franchising
This means that foreign franchises
are used to operate a business’s
franchise abroad.
 Localizing existing brand
‘Think global, act local’. It has
adapted to local tastes and culture.